The news: US consumer spending grew just 1.5% in the first three months of the year, according to the latest GDP analysis by the Commerce Department.

• That’s down from its prior estimate of 2.0% growth, and a significant deceleration from the 3.3% growth seen in the previous quarter.

The vibecession: Spending is slowing as consumers’ feelings of economic uncertainty intensify, regardless of the state of their personal finances.

• 84% of consumers consider inflation to be one of their top three financial concerns, up 5% year over year and the highest level in two years, per a TransUnion survey.
• At the same time, the labor market continues to be strong, grocery inflation is practically negligible, and many retailers are lowering prices—news you’d think would make cost-conscious shoppers feel more optimistic.
• In one sense, it has: The vast majority—78.1%—of US consumers expect their financial situations to remain the same or improve over the next 12 months, according to the New York Fed’s May Survey of Consumer Expectations. That’s the most since June 2021.
• But the Fed’s delayed timeline for cutting interest rates is increasing the burden on households carrying debt. Non-mortgage interest payments accounted for 2.4% of consumers’ disposable income in April, nearing levels last seen in 2008, Wells Fargo economist Tim Quinlan told Bloomberg.
• That’s contributing to the strain consumers feel, even as real wage gains restore their buying power and US household wealth is at a record high.

How to stay top-of-mind: Retailers are responding to the rough patch in consumer spending by doubling down on value in the form of lower prices, improved products, or better service—or all of the above.

• Academy Sports & Outdoors is taking a three-pronged approach centered on value, assortment, and experience. The retailer is timing its promotions to coincide with occasions like July 4th and the back-to-school season, stocking up on popular products like Nike shoes, Uggs, and pickleball equipment, as well as rolling out a loyalty program to offer perks to repeat customers.
• Target is leaning on price cuts and its thriving private label business to win shoppers over, alongside promotional events like its upcoming Target Circle Week sale and a revamped membership program.
• General Mills is rolling out “taste improvements” for its brands—such as cheesier Annie’s mac and cheese and fudgier Betty Crocker brownies—this year to capture shoppers’ attention and keep them from trading down to store brands.

The big picture: We expect consumer spending to be solid this year, despite uncertainty.

• Our forecast expects US retail sales to grow by 2.8%, an acceleration from last year’s 2.1%.
• The growth will be driven mostly by wealthier consumers, who are back to purchasing more expensive brands and products as their buying power recovers.
• But lower-income consumers continue to be hit hard by rising living costs and debt, which is triggering trade-down behaviors and other cutbacks in spending.